China GDP growth of 7.5pc hits market expectations

A recent burst of targeted stimulus unleashed by the Chinese government to avert a slowdown, appears to be working, confirming that worries of a hard landing are unfounded for now at least.

The country's economy grew at a rate of 7.5 per cent in the 12 months to the end of June, up from the previous quarter's reading of 7.4 per cent.

The result was slightly higher than the 7.4 per cent analysts had expected, but matched the Chinese government's forecasts.

TD Securities head of Asia-Pacific research Annette Beacher says steady Chinese GDP growth should, "continue to support commodity prices and the Australian dollar."

Over the June quarter the Chinese economy grew at a rate of 2 per cent, which was better than the market expectation for a rise of 1.8 per cent.

China economist at Capital Economics, Julian Evans-Pritchard, says the measures recently rolled out by the Chinese government have been effective.

"I think that should ease a lot of the concerns that we saw after the weak first quarter numbers. It would also ease calls for more aggressive stimulus which we saw a lot in recent months, " he said.

"[But] I think the recovery is quite dependent on government support."

China's official growth target for 2014 is 7.5 per cent and economists say the government has the ability to ensure it meets this by rolling out more stimulus.

"The recovery is quite dependent on government support," China economist at Barclays Capital in Hong Kong, Chang Jian, said.

"So I think the government can choose either to tolerate lower growth, or to achieve the growth target they just have to do more stimulus.

"We are looking for two interest rates cuts in the third and fourth quarters. Also, mini stimulus or targeted support measures will continue to boost infrastructure spending and to support consumption growth."

Others are less cautious about the outlook. Analyst at Essence Securities in Beijing, You Hongye sees signs of a stabilisation occurring without more government aid.

"There are a few positive developments that could be sustained. It looks like if the economy stabilises, the necessity for further stimulus will certainly weaken," he said.

Monthly data

More timely monthly data was also pumped out from China's National Bureau of Statistics perhaps giving financial markets something to react to.

At 12:30pm (AEST), after initially briefly firming on the data's release, the Australian dollar had fallen 0.3 of a cent to 93.36 US cents.

Industrial production, or factory output, picked up by a more than expected to 9.2 per cent in the year to June from 8.8 per cent in May.

However, electricity production - which is widely viewed as a more accurate proxy for Chinese economic growth - eased a little to growth of 5.7 per cent from 5.9 per cent over the same period.

Consumer activity also remained fairly flat, with retail sales growth down slightly to 12.4 per cent from 12.5 per cent in May, and property investment cooled a little to 14.1 per cent from 14.7 per cent in May.

Annette Beacher says Beijing would likely be happy with the numbers.

"The gap between retail sales and industrial production growth has stabilised lending support to the government's ambition to rotate growth away from heavy industry and to support consumption," she said.